The EU is looking at measures to strengthen its influence over the development and use of International Financial Reporting Standards (IFRS) across the region, which would include restructure the European Financial Reporting Advisory Group (EFRAG) to ensure a co-ordinated response to any proposed changes to accounting standards.
Options for transforming the way EFRAG works and is funded are contained in a report prepared by Philippe Maystadt, special adviser to EU commissioner Michel Barnier, which is due to be discussed by the EU's Economic and Financial Affairs Council (ECOFIN) in a meeting on Friday.
The report states that EFRAG's influence over the development of IFRS standards and implementation is fragmented. Maystadt argues that EFRAG, the national standards setters, regulators and relevant professional bodies often adopt different and even opposite positions on the International Accounting Standards Board's (IASB) proposals and deal directly with the IASB, which diminishes the influence of the EU.
The report calls for a more coordinated European approach to IFRS. In particular, it points out that currently EFRAG focuses almost exclusively on the technical, rather than the economic, impact of IFRS standards and there should be more emphasis on ensuring that accounting standards do not undermine financial stability.
Maystadt proposes that a system of compulsory levies should be paid by listed companies that use and benefit from IFRS, which would stabilise the organisation.
The report also calls for reform of the current general assembly membership of EFRAG so that it is extended to include national funding mechanisms and other private or public sector organisations. It says the current supervisory board should be replaced with a high-level board which would be responsible for the comment letters to IASB over standards.
Under this model, the current technical expert group would take on an advisory role to the new high-level board, rather than having full authority to determine EFRAG's position on IFRS, as is the case now.
However, the report says that there should be no change to the current 'yes/no' approach to agreeing on the use of IFRS and warns against the use of 'carve in' or 'carve out' options whereby the EU would seek to opt out of certain requirements.
The report also says that action should be taken quickly, concluding: 'The EU needs an effective structure, capable of offering the Commission pertinent advice on the endorsement of the important standards that will be finalised in the short term by the IASB, as soon as possible.'
The report was issued as Michel Prada, chairman of the IFRS Foundation Trustees, delivered a strong speech supporting its role as the standard setter for IASB, effectively rebutting criticism from the EU. He said that adhering to a single set of global standards was 'difficult and sometimes unpopular', but he stressed that 'there really is no alternative'.